When it comes to buying your first investment property, there are a lot of things you need to take into account.
The most important thing is to make sure that you are fully prepared for what lies ahead. This means saving up money for a down payment, getting pre-approved for a mortgage, and researching the rental market in the area where you want to buy.
If you do your homework and take the time to plan ahead, you’ll be more likely to find success when investing in property.
The importance of saving up for a down payment
One of the most important things you need to do before purchasing your first investment property is save up money for a down payment. This will show that you are serious about buying and invested in the property. It will also help you get approved for a mortgage, since most lenders require a down payment of at least 20%.
How to get pre-approved for a mortgage
When it comes to getting pre-approved for a mortgage, the process is a little different when you are buying an investment property.
First of all, you will need to provide your lender with more detailed information about the property you want to buy. This includes the purchase price, the down payment amount, and the estimated closing costs.
Your lender will also want to see a copy of the purchase agreement, as well as proof that you have enough money saved up to cover the down payment and closing costs.
If everything looks good, your lender will then give you a pre-approval letter which will show that you are approved for a mortgage up to a certain amount.
Researching the rental market
When you are researching the rental market, there are a few things you should keep in mind.
First of all, it’s important to determine whether or not the rental market is healthy. This means looking at things like vacancy rates, rent prices, and how much demand there is for rental properties.
Another thing to consider is what kind of return on investment you can expect from renting out the property. You should also look at things like average occupancy rates and monthly rental income.
By doing your research ahead of time, you’ll have a better idea of whether or not buying an investment property is a wise decision.
What to research before buying an investment property
1. Talk to people who have experience with investment properties
One of the best ways to learn more about buying an investment property is to talk to people who have experience with it. This could include your parents, friends, or colleagues who have invested in property before. They can share their tips and advice, and help you avoid any potential pitfalls.
2. Get a real estate agent’s opinion
When you’re considering buying an investment property, it’s a good idea to get a real estate agent’s opinion. They will be able to tell you if the market is good for investing in, and they can also help you find the right property to buy.
3. Consider hiring a property manager
If you’re not interested in being a landlord or if you don’t have the time, it might be a good idea to research hiring a property manager.
Property managers are responsible for looking after your investment property, so they will take care of things like collecting rent from tenants, handling maintenance requests, and sending out notices when the rent is late.
You should consider hiring a property manager when you’re not able to be actively involved in managing your investment property.
Benefits of investing in rental properties
There are many benefits to investing in rental properties, and some of them include:
- Regular income: One of the best things about owning a rental property is that you can expect regular income from it. This is especially true if you hire a property manager to look after things for you.
- Tax breaks: When you own a rental property, you can take advantage of certain tax breaks, which can help reduce your tax bill.
- Appreciation: Over time, the value of your rental property is likely to increase, which can be a great thing for your investment portfolio.
- Leverage: By using borrowed money to purchase a rental property, you can increase your return on investment. This is known as using leverage, and it’s a good way to increase your profits.
- Passive income: When you buy a rental property, it can become a source of passive income which you can use to supplement your salary.
Risks and disadvantages of investing in rental properties
While there are many benefits to investing in rental properties, there are also some risks and disadvantages that you should be aware of.
- Vacancy rates: One of the biggest risks of investing in rental properties is vacancy rates. If your property is vacant for an extended period of time, you could lose a lot of money.
- Maintenance costs: Another thing to keep in mind is that maintenance costs can add up over time. You might have to pay for things like repairs, landscaping, and painting.
- Bad tenants: Unfortunately, you also run the risk of getting bad tenants who don’t pay rent on time or who damage your property.
- Limited control: When you own a rental property, you will have limited control over what your tenants do to it. This means that they could potentially cause a lot of damage without you knowing until it’s too late.
- It will usually take a lot more of your time than you realize. Handling all of the different pieces of being a landlord can quickly become overwhelming, especially staying abreast of things that you legally can and cannot do. Making a mistake could land you in legal trouble. While it is appealing to keep all of the income being generated, you should consider whether the usually very affordable fee of a property management company to handle all of these things would be best.
When it comes to buying your first investment property, there are a lot of things that you need to keep in mind. In this article, we have outlined some of the most important things for you to consider before making your purchase.
We have also discussed the benefits and risks associated with investing in rental properties. By weighing all of the information, you will be able to make an informed decision about whether or not purchasing an investment property is right for you.